Pearson Family Members Foundation sues University of Chicago, aiming to revoke $100M gift

Jose M. Osorio / Chicago Tribune

University of Chicago President Robert Zimmer is flanked by Thomas Pearson, left, and Timothy Pearson, after an announcement of a $100 million gift to establish the Pearson Institute for the Study and Resolution of Global Conflicts at the university in 2015.

University of Chicago President Robert Zimmer is flanked by Thomas Pearson, left, and Timothy Pearson, after an announcement of a $100 million gift to establish the Pearson Institute for the Study and Resolution of Global Conflicts at the university in 2015. (Jose M. Osorio / Chicago Tribune)

The donation to the University of Chicago in 2015 was as generous as it was ambitious: the Pearson Family Members Foundation pledged an eye-popping $100 million to establish a center devoted to finding new ways to resolve global conflicts.

Nearly three years later, that donation is in disarray.

The foundation, led by Thomas Pearson and his brother Timothy Pearson, is suing the university to recoup the $22.9 million it has already handed over, saying the university’s leaders have failed to demonstrate they are using the landmark gift for its intended purpose.

They say the university, among other shortcomings, has failed to hire a full-time daily director to oversee the institute, develop academic curriculum, hire high-quality faculty or schedule the institute’s annual forum as stipulated by the gift agreement, according to the lawsuit.

“As a result of having breached its obligations and having engaged in deliberate misrepresentations over a period of more than two years, the U. of C. has caused the foundation to lose all confidence that the U. of C. is an appropriate or capable steward of the Pearson family legacy,” the lawsuit states.

In response, university leaders bristled at the lawsuit, calling it “baseless” and said the institute is flourishing.

The institute is offering 12 courses through the Harris School of Public Policy in the 2017-18 school year, according to its website. There also are 10 fellows and two scholars at the institute this year, the website said.

“In the short time since its formation, the institute has hosted dozens of events, enrolled more than 200 students in courses related to the study of global conflict, and fostered an engaged community of scholars,” the university said in a statement. “The remarkable faculty, staff and students at the Pearson Institute will continue their important and meaningful work with the full support and endorsement of the university.”

The ongoing dispute highlights the question over what kinds of conditions a donor can attach to a gift and a university’s legal or ethical obligation to honor those demands.

The Pearson Institute for the Study and Resolution of Global Conflicts emerged with much fanfare a little more than two years ago, and not just because of the mega-gift that made it possible.

The Pearsons made what at the time was the second-largest solo donation to a university accustomed to big-ticket donations. Only David G. Booth, who gave $300 million to the business school in 2008, had given more. Since then, Ken Griffin has committed $125 million to the university’s economics department.

The institute was conceptualized as the first wide-scale effort using data-based research to develop military, economic and diplomatic strategies to resolve violence in countries that had become hotbeds for terrorism. Global conflicts, university officials explained at the time, were not merely about countries clashing with each other but about different factions within a country creating strife.

In addition to the institute, the gift would help launch the annual Pearson Global Forum where the University of Chicago could showcase its groundbreaking research and bring together international leaders in world conflict to collaborate and exchange ideas.

The Pearsons, who had no connection to the university, said they chose U. of C. from a pool of about a dozen schools.

“Our choice of the University of Chicago for this gift underscores our recognition of the university’s history of fostering an environment where rigorous inquiry is successfully applied to society’s toughest problems,” Thomas Pearson said when the donation was announced.

But the relationship between the university and the Pearsons quickly soured, according to the lawsuit, which was filed Feb. 20 in Tulsa, Okla., where the foundation is based.

Once the grant agreement was inked in spring 2015, the university had until fall 2016 to appoint a director for the Pearson Institute with a one-year extension to September 2017, the lawsuit states. Part of the gift also would endow four named professorships in the Harris School, one of which would incorporate the role of faculty director for the Pearson Institute, according to a university news release at the time.

The university appointed James Robinson as faculty director in June 2016. An executive director tasked with also overseeing the Pearson annual forum was to be announced, “in the near future,” according to a university news release.

That never happened, the lawsuit alleges. Instead, as the university neared its 2017 deadline to name a director for the institute, school leaders quietly changed Robinson’s title on the website from “faculty director” to “institute director,” the lawsuit states.

The lawsuit also alleges that the university hired underqualified faculty to fill two of the other named professorship positions. A fourth professorship has not been filled.

The Pearsons said they insisted on the chaired faculty positions, the lawsuit states. Instead U. of C. chose professors from schools “ranked below the U. of C. in national academic standings,” the lawsuit states.

The two professors were not named in the suit but a university news release shows Chris Blattman and Oeindrila Dube were named to two of the open Pearson professorships in May 2016. Blattman previously was an associate professor at Columbia University and Dube was an assistant professor at New York University before joining the Harris faculty.

The lawsuit also alleges that the university planned to use millions of dollars earmarked for the institute to pay for operating expenses for the Harris School, sapping the institute of its primary form of support. And it says the Pearsons were not invited to the majority of events related to the center.

The Pearsons want the court to order U. of C. to pay back all the money the foundation invested for the institute and forum, as well as attorney fees and costs.

“The university has a demonstrated history of responsibly stewarding and administering gifts and grants of all sizes and for many purposes,” U. of C.’s leaders said in their statement. “The university honors its grant agreements with its donors, and it did so with the Pearsons. Further, all academic and hiring decisions are the sole purview of the university and its faculty, guided by the principle of academic freedom.”

The lawsuit is among similar disputes between universities and philanthropists over mega-donations of eight and nine figures that have emerged throughout the country.

Descendants of Charles and Marie Robertson, who built their fortune in a popular New Jersey grocery store chain, sued Princeton University in 2002 for mismanaging a $35 million endowment started in the 1960s to help support students who sought careers in government. The two sides settled in 2008, with the university keeping the majority of the fund but agreeing to pay tens of millions in legal fees and toward starting a new foundation.

Back in 1995, Yale University returned $20 million from alum Lee Bass, who complained the school had not followed through with its commitment to launch more courses in western civilization.

Richard A. Mittenthal, president and CEO of the TCC Group, a New York-based consulting firm for foundations and nonprofit organizations, said revoking a philanthropic gift is challenging and complicated.

Donors and universities can agree to terms of a gift but once the money is out the door, a benefactor relinquishes almost all control over how every dollar is spent.

Beyond that, the donations translate into a tax break for an individual or they help a foundation fulfill its annual giving requirements, making a refund more complex.

“Donors put in as many conditions as they can but a lot of it is subject to interpretation,” Mittenthal said. “The violation of the arrangement has to be fairly significant for a donor to actually go to court.”

This is not the first time the Pearsons have been involved in such a dispute. Thomas Pearson sued the Garrett-Evangelical Theological Seminary in 2011 to try to revoke an endowed scholarship, arguing the Evanston-based institution failed to meet his wishes about which students were qualified to receive the support.